Lowering Corporate Tax Rate Unlikely to Create More Jobs

Wednesday, December 04, 2013
(photo: Julie Jacobson, AP)

Business lobbyists have pushed Congress and President Barack Obama to lower the tax rate on corporations, claiming such a move would spur job creation in the United States. But a new study from a government watchdog group claims going easier on corporations will not lead to more employment opportunities for Americans.

 

“The notion that reducing the taxes corporations pay on their profits will create new jobs in the U.S. is just not borne out by the evidence we examined,” Katherine McFate, president and CEO of the Center for Effective Government and one of the co-authors of the new report, said in a prepared statement.

 

The report, The Corporate Tax Rate Debate: Lower Taxes on Corporate Profits Not Linked to Job Creation (pdf), examined 60 large corporations and found that 22 of the 30 companies that paid the highest tax rates created nearly 200,000 jobs over a five-year period.

 

Meanwhile, those companies that paid little or no taxes actually laid off employees— more than 51,000 during that same period.

 

Businesses that created jobs included Smuckers, Nordstrom, Hershey, and Automatic Data Processing, according to the study. One example is Lowe’s, the second largest home improvement store in the country, which paid more than 36% in taxes over a four-year period and hired nearly 29,000 additional employees.

 

On the flip side, Verizon, the nation’s biggest wireless provider, earned $32 billion in U.S. profits during the same period and even received $951 million in tax refunds—yet cut 56,000 employees from its payroll.

 

Currently, the corporate tax rate stands at 35%. But thanks to numerous loopholes, corporations on average pay just 12.6% of their profits in federal income taxes, according to a recent study by the Government Accountability Office.

 

Two congressional leaders, Representative Dave Camp (R-Michigan) and Senator Max Baucus (D-Montana), the respective chairs of Congress’ tax writing committees, have called for closing corporate tax loopholes and using the proceeds to reduce the tax rate on corporate profits.

 

The report’s authors argue that the tax rate should not be reduced, and that corporations should pay their fair share to the U.S. Treasury.

 

“Corporations receive significant benefits from operating here in the U.S.,” Scott Klinger, the group’s director of revenue and spending policies and co-author of the report, said. “A workforce educated at public expense; roads and transit systems that allow employees to get to work and goods to reach customers; and consumer safety standards and inspections that give consumers confidence in products – these are just a few of the advantages American corporations enjoy.”

-Noel Brinkerhoff

 

To Learn More:

Taxes on Corporate Profits Not Tied to Job Creation, New Study Finds (Center for Effective Government)

The Corporate Tax Rate Debate: Lower Taxes on Corporate Profits Not Linked to Job Creation (Overview) (Center for Effective Government)

The Corporate Tax Rate Debate: Lower Taxes on Corporate Profits Not Linked to Job Creation (by Scott Klinger and Katherine McFate, Center for Effective Government) (pdf)

Major U.S. Corporations Pay One-Third of U.S. Tax Rate (by Noel Brinkerhoff, AllGov)

CEO Group Launches Campaign to Reduce Corporate Tax Rate to 25% (and Keep the Loopholes) (by Noel Brinkerhoff, AllGov)

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